New research published last week by The Pew Health Group’s Safe Credit Cards Project examined the impact of new regulations brought in by the Credit CARD act 2009 on consumers.
The report concludes that the credit card law has helped consumers.
The project’s director Nick Bourke summed up the research in a press release which stated,
Pew’s research shows that predictions that the legislation would spark new charges and long-term interest rate growth have not materialized. Whatever increases in advertised interest rates we saw going into 2010 have not continued into 2011. The Act created a new equilibrium where interest rates have flattened, penalty charges have declined and a number of practices deemed “unfair or deceptive” have disappeared. Consumers are enjoying safer, more transparently priced credit cards – and banks and credit unions are able to compete on a more level playing field.
The report is a huge endorsement of the new law and is backed up by two major findings for credit cards that are issued by banks. Firstly, the report found that credit card rates are now stable. At the beginning of 2011, advertised credit card interest rates for purchases stayed within the 12.99% to 20.99% bracket which they were in during 2010.
Second of all, the report finds that credit cards have much lower penalty charges. Just 11% of bank issued credit cards now charge over limit penalty fees, while fees for late payment have dropped from an average of $39 to a capped fee of $25. However, credit card issuers are allowed to increase this to $35 for subsequent late payments within a six month period to discourage repeated late payment.
When the Credit CARD Act was being written up in 2009, credit card companies and lobbyists argued that it would interfere with the marketplace and cause unintended consequences which would harm consumers interests. However, the report shows that for the most part these concerns have turned out to be unfounded — although they haven’t all turned out to be incorrect.
The report acknowledges that there has been an increase in the number of credit cards which charge an annual fee. It is argued that new annual fees and higher credit card rates target those consumers who are unable to afford them, so not everyone has benefited from the credit card regulations. However, Peter Garuccio of the American Bankers Association hit the nail on the head when he said,
when you look at the regulations, it’s a net positive for consumers. But there have been some trade-offs.